DATE DOWNLOADED: Mon Jan 31 03:31:43 2022

SOURCE: Content Downloaded from HeinOnline

Citations:

Bluebook 21st ed.

Shabir Korotana, Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract, 21 EUR. J.L.
REFORM 526 (2019).

ALWD 7th ed.

Shabir Korotana, Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract, 21 Eur. J.L.
Reform 526 (2019).

APA 7th ed.

Korotana, S. (2019). Economic Inequality, Capitalism and Law: Imperfect Realization
of Juridical Equality, the Right to Property and Freedom of Contract. European
Journal of Law Reform, 21(4), 526-544.

Chicago 17th ed.

Shabir Korotana, "Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract," European Journal
of Law Reform 21, no. 4 (2019): 526-544

McGill Guide 9th ed.

Shabir Korotana, "Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract" (2019) 21:4 Eur JL
Reform 526.

AGLC 4th ed.

Shabir Korotana, 'Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract' (2019) 21 European
Journal of Law Reform 526.

MLA 8th ed.

Korotana, Shabir. "Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract." European Journal
of Law Reform, vol. 21, no. 4, 2019, p. 526-544. HeinOnline.

OSCOLA 4th ed.

Shabir Korotana, 'Economic Inequality, Capitalism and Law: Imperfect Realization of
Juridical Equality, the Right to Property and Freedom of Contract' (2019) 21 Eur JL
Reform 526

-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and
Conditions of the license agreement available at
https://heinonline.org/HOL/License
-- The search text of this PDF is generated from uncorrected OCR text.
-- To obtain permission to use this article beyond the scope of your license, please use:
Copyright Information
Economic Inequality, Capitalism and Law
Imperfect Realization of Juridical Equality, the Right to Property
and Freedom of Contract

Shabir Korotana*

Abstract

There is a general unease among the public across all jurisdictionsabout the pro-
gressive economic inequality that seems to define the new normal, and this phe-
nomenon has been succinctly documented in numerous prominent studies. This
trend of capitalism has been supported by the existing structures of the common
law, albeit contrary to the aim and purpose of its original principles. The studies
show that the modern capitalist societies display a persistent trend of increasing
inequality, and this is summed up by the observation that modern capitalism gen-
erates progressiveand intense economic inequality.
Capitalism as a socio-economic system is structured and sustainedby the law
and by socio-economic systems of institutions. Capitalismis not only a social order-
ing; essentially, it is a legal ordering.At the heart of this legal ordering are private
laws, and tort law, but the most importantis contract law: freedom of contract.It
is common law, similar to the private law in other jurisdictions,that is responsible
for the extreme inequality because it allows the institutions of capitalism to func-
tion freely and without much control. The open-ended capitalism that allows accu-
mulation of wealth without ceiling causes progressive inequalityin society and con-
sequently works against the very freedom and individualism that are supposed to
be the ideals of common law and capitalism. Because of the existing institutions of
capitalism and the legal construct, freedom, fairness and the intended progress of
the individual were not properly realized; the understandingof the ideas and prin-
ciples of freedom, individualism,juridicalequality, the right to property and free-
dom of contract have been imperfectly realized. With rising inequality, it is this
imperfect realization,particularlyofjuridicalequality that is in question.

Keywords: capitalism, inequality, juridical, law, property.

A Introduction

There is a growing disquiet among the general public both on the right and on the
left about the economic inequality that seems to define the new normal; the

* Shabir Korotana is Senior Lecturer in Commercial Law at Brunel Law School, Brunel University
London.

526 European Journal of Law Reform 2019 (21) 4

doi: 10.5553/EJLR/138723702019021004004
 Economic Inequality, Capitalism and Law

recession that followed the 2008 financial crisis and the plutocratic response to
the crisis appear to have further confirmed public unease about the progressive
inequality.' This phenomenon has been succinctly documented in various promi-
nent studies.2 Thomas Piketty documents in his celebrated treatise Capital in the
Twenty-First Century a sudden increase in inequality of income and wealth among
people of equal juridical status, based on his study of economic inequality in a
number of societies over the last three centuries, but with a particular focus on
the post-war twentieth century. 3 By examining tax and probate records, Piketty
notes an extraordinary increase in inequality of income and wealth over the last
few decades in the most developed Western European economies, the United
States, Canada, Australia and Japan, with comparable trends in developing
states. 4 Piketty's central thesis is that throughout history, the rate of return on
private capital has consistently surpassed the rate of economic growth, which he
articulates as r >g.5 This means that the wealthy class as the predominant posses-
sor of capital will grow their wealth 6 faster than economies grow, and the non-
wealthy will keep falling behind.7 As the concentration of wealth is associated
with the top 1%, 0.1% and 0.01%,8 Piketty's conclusion may be summed up in the
following terms: modern capitalism generates progressive and intense economic
inequality.
During the mid-2000s Picketty, in collaboration with Emmanuel Saez, pub-
lished several insightful and well-researched studies on income inequality in the

1 D.S. Grewal, 'The Laws of Capitalism', HarvardLaw Review, Vol. 128, 2014, p. 626; J.Z. Muller,
'Capitalism and Inequality, What the Right and the Left Get Wrong', ForeignAffairs, Vol. 92, No.
2, 2013.
2 A.B. Atkinson, Inequality: What Can Be Done? Cambridge, Harvard University Press, 2014; A.B. &
J.E. Stiglitz, 'The Design of Tax Structure: Direct Verses Indirect Taxation', Journal of Public Eco-
nomics, Vol. 6, No. 1-2, 1976, pp. 55-75; S. Kuznets, Shares of Upper-Income Groups in Income and
Savings, New York, National Bureau of Economic Research, 1953; S. Anand & S.M.R. Kanbur,
'The Kuznets Process and the Inequality- Development Relationship', Journalof Development Eco-
nomics, Vol. 40, No. 1, 1993, p. 25; A.B. Atkinson, 'Bringing Income Distribution in from the
Cold', The Economic Journal, Vol. 107, No. 441, 1997, p. 297; P. Conceicao & J.K. Galbraith,
'Toward a New Kuznets Hypothesis', in J.K. Galbraith & M. Berner (Eds.), Inequality and Indus-
trial Change, New York, Cambridge University Press, 2001, p. 139; Alvaredo et al., 'The Top 1 Per-
cent in International and Historical Perspective', Journal of Economic Perspectives, Vol. 27, No. 3,
2013, pp. 3-20; A.B. Atkinson, T. Piketty, & E. Saez, 'Top Incomes in the Long Run of History',
Journalof Economic Literature, Vol. 49, No. 1, 2011, pp. 3-71; T. Piketty & E. Saez, 'Top Incomes
and the Great Recession: Recent Evolution and Policy Implications', IMF Economic Review, Vol.
61, No. 3, 2013, pp. 456, 458.
3 T. Piketty, Capital in the Twenty-First Century, (A. Goldhammer Trans.), Cambridge, Belknap
Press of Harvard University Press, 2014.
4 Ibid.
5 Ibid., p. 25.
6 Piketty equates wealth with capital, see ibid., pp. 47-50.
7 For critics of Piketty's claims see, D.N. McCloskey, 'Measured, Unmeasured, Mismeasured and
Unjustified Pessimism: A Review Essay of Thomas Piketty's Capital in the Twenty-First Century',
Erasmus Journalfor Philosophy and Economics, Vol. 73, No. 2, 2014; D.R. Henderson, 'An Uninten-
ded Case for More Capitalism', Regulation, Vol. 37, No. 3, 2014, p. 58.
8 Alvaredo et al., 2013; Atkinson et al., 2011; Piketty & Saez, 2013.

European Journal of Law Reform 2019 (21) 4 527

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

United States. 9 The findings indicated that since the mid-1970s the 'one per cent'
in the United States had seized an ever-growing share of national income. Pick-
etty also published the analysis of historical trends in income and wealth inequal-
ity across most developed states, a project undertaken in collaboration with sev-
10
eral celebrated international scholars.
Nobel Laureate economist Simon Kuznets had laid out a different view of
economic inequality in his study of developments in the first half of the twentieth
century." He was awarded the Nobel Prize for his research on the United States'
economic growth and national income between 1913 and 1948. His study
revealed a trend in capitalism towards originally increasing but later decreasing
economic inequality. The reversed U-shaped relationship is now called the Kuz-
nets Curve.' 2 Piketty's research broadens "the spatial and temporal limits of Kuz-
nets's innovative and pioneering work", by bring numerous developed societies
into the study over a larger time scale of three centuries. Piketty's work reveals
that Kuznets's research merely maps an historical anomaly, 1 3 an inequality that
may have decreased in the mid-twentieth century but returned in the 1970s and
1980s.
The Kuznets Curve also promised that further economic growth would self-
correct the problems that growth itself brings; however, Kuznets did not explain
this self-correcting mechanism. Piketty's re-examination of Kuznets's data and
his own data spanning over three centuries showed a persistent increase in eco-
nomic inequality, and this disturbed the belief that the market would self-correct
economic inequality. Picketty instead highlights the exceptional nature and
anomaly of the post-war period. The twenty-first-century inequality resembles
the ninetieth and early twentieth centuries when unequal asset ownership proved
decisive of an individual's life chances. As with the ninetieth and twentieth centu-
ries' patrimonial capitalism, class stratification and the oligarchic control of the
state was an economic, cultural and social reality, and Piketty's data and his find-
ings reflect the likelihood of the same cultural, social and political consequences
being seen in the near future.
Inequality - differences in income and wealth - among people of equal juridi-
cal status was taken for granted by the classical political economists. Adam Smith,
in Wealth of Nations, discusses the rich and poor in Europe against the back-

9 T. Piketty & E. Saez, 'Income Inequality in the United States, 1913-1998', The Quarterly Journal
of Economics, Vol. 118, No. 1, 2013, p. 1; T. Picketty & E. Saez, The Evolution of Top Incomes: A
Historical and InternationalPerspective, National Bureau of Economic Research, Working Paper
No.11955, 2006.
10 Alvaredo et al., 2013; Atkinson et al., 2011; Piketty & Saez, 2013.
11 Kuznets, 1953; Anand & Kanbur, 1993; Atkinson, 1997; Conceicao & Galbraith, 2001.
12 Ibid.; See also, S. Kuznets, 'Economic Growth and Income Inequality', The American Economic
Review, Vol. 45, No. 1, 1955, pp. 1-28; J. Andreoni & A. Levinson, 'The Simple Analytics of the
Environmental Kuznets Curve', Journalof Public Economics, Vol. 80, No. 2, 2001, p. 269; T. Pan-
ayotou, 'Demystifying the Environmental Kuznets Curve: Turning a Black Box into a Policy Tool',
Environment and Development Economics, Vol. 2, No. 4, 1997, p. 465.
13 See generally,A.M. Marglin & J.B. Schor (Eds.), The Golden Age of Capitalism, Oxford, Oxford Uni-
versity Press, 1990.

528 European Journal of Law Reform 2019 (21) 4

doi:10.5553/EJLR/138723702019021004004
 Economic Inequality, Capitalism and Law

ground of inequality in primitive society.' 4 It was understood that the free mar-
ket would generate a new kind of inequality. The advocates of the free market had
argued that any inequality generated by the division of labour would compensate
for the loss of a largely hypothetical natural equality. 5 Natural equality had
always been undermined by social institutions such as slavery and other status-
promoting hierarchies. The free market, on the other hand, had generated juridi-
cal equality on the basis of freedom of contract and respect for resulting mutual
obligations. While the transition to juridical equality and freedom of contract dis-
pelled feudalism, it left the problems of 'modern inequality' undisturbed. How-
ever, later political philosophers and economists such as John Stuart Mills and
Karl Marx argued that means of production and distribution of wealth must be
primarily understood as political issues. Hence, they advocated more equitable
social and economic arrangements within societies that had already been trans-
formed by the age of modern commerce.
Although one can argue that Piketty's conclusion regarding increasing
inequality is one we already knew by intuition, the most significant factor is that
it is backed by spatial and temporal empirical research. It is a coherent historical
narrative that is both long-running, over three hundred years, and cross-conti-
nental, encompassing North America, Western Europe, Japan and Australia. This
empirical confirmation also contradicts a long-held belief in the United States and
other developed societies that there is a correlation between capitalism, equality
and democracy. A small percentage of people now possess so vast an amount of
wealth that they can buy media corporations and private military influence, can
6
sway individual election results and can determine electoral trends.'
Capitalism as a socio-economic system is structured and sustained by the law
and socio-economic systems of institutions. Capitalism is not only a social order-
ing but also a legal ordering. At the heart of this legal ordering are private laws
and tort law, but, most importantly, there is contract law: freedom of contract,
or, in other words, bargains. This article will develop a hypothesis that it is com-
mon law, similar to the private law in other jurisdictions, that is responsible for
the extreme inequality because it allows the institutions of capitalism to function
freely without much control. Although earlier social and legal developments that
encapsulate the ideas of juridical equality, the right to property, and freedom of
contract were meant to check unhindered inequality, the successive stages of cap-
italism with its tyrannical legal construct always undermined the ideals of free-

14 I. Hont & M. Ignatieff, 'Needs and Justice in the Wealth of Nations', in I. Hont & M. Ignatieff
(Eds.), Wealth and Virtue, Cambridge, Cambridge University Press, 1983, pp. 13-14.
15 Ibid.
16 Donald Trump's election campaign to seek the Republican nomination for the US presidential
race epitomizes this view. The legal framework allows this to happen: see Citizens United V. FEC,
(2010) 130 S. Ct. 876; Ariz. Free Enter. Club's Freedom Club PAC v. Bennett, (2011) 131 S. Ct. 2806;
FEC v. WIS. Right to Life, Inc., (2007) 551 U.S. 449; Mc Cutcheon v. FEC, (2014) 134 S. Ct. 1434; see
also, politically motivated redistricting: H. Gerken, 'Getting from Here to There in Redistricting
Reform', Duke Journalof ConstitutionalLaw and Public Policy, Vol. 5, No.1, 2010, p. 1; H. Gerken,
'Lobbying as the New Campaign Finance', Georgia State University Law Review, Vol. 27, 2011, p.
1155; L. Lessig, Republic Lost, New York, Twelve Books, 2011.

European Journal of Law Reform 2019 (21) 4 529

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

dom and equality. Because of the existing institutions of capitalism and the legal
construct, freedom, fairness and the intended progress of the individual were not
properly realized. The concepts of freedom of contract and the right to property
should be reconceptualized and restricted for the sake of freedom, fairness, indi-
vidualism and liberalism, which are supposed to be the main aims of capitalism.
The term 'capitalism' in the modern sense is largely associated with industrial
capitalism, and its use became widespread in the late nineteenth century. Society
before this was primarily based on commerce. This commercial regime was also
based on capitalism. However, the nature of capitalism, capitalist and the institu-
tions of capitalism were different.' 7 Commerce was the focus of market exchange
and did not have the concept of wages; merchants sold their goods in the markets
and fairs and became capitalists.
The main assertion that capitalist societies display a persistent trend of
increasing inequality should serve as a stimulus to examine the underlying legal
and institutional foundations of capitalist economic relations.' 8 So what are these
legal and institutional arrangements that govern the capitalist economic and
social relations defined as a capitalist economic system? How it came about, how
it is being sustained and how the law is responsible for the sustained inequality
has been highlighted by Piketty's research,' 9 along with what is good about capi-
talism as a legal order. Section B traces the emergence of commercial society and
the origins of juridical equality, the right to property and freedom of contract. It
highlights the legal ordering of capitalism and the resulting inequality. Section C
deals with capitalism as an institutional ordering and the resulting inequality,
and Section D discusses the imperfect realization of juridical equality, the right to
property and freedom of contract.

B The Emergence of Capitalist Economic Organization and Its Legal

Organization

I Federalism:An Economic Organizationand Legal Order

The various epochs of economic history since the beginning of the Middle Ages
have displayed distinct economic organizations particular to each. The origin and
nature of each economic organization are characterized by that period of history
and its legal foundations. In the early stages of the Middle Ages (fifth to eleventh
centuries), economic organization was associated with feudalism and rich monas-
teries, and feudal revenues or church wealth were not directed towards com-
merce. Capitalism was non-existent, and the feudal society did not allow individu-

17 For different phases of capitalism, see H. Pirenne, 'The Stages in the Social History of Capitalism',
494
The American HistoricalReview, Vol. 19, No. 3, 1914, pp. -515.
18 M. Samuel, 'Thomas Piketty and the Future of Legal Scholarship', HarvardLaw Review, Vol. 128,
2014, p. 49; P.L. Caron, 'Thomas Piketty and Inequality: Legal Causes and Tax Solutions', Emory
Law Journal Online, Vol. 64, 2015, p. 2073; S.L. Hsu, 'The Rise and Rise of the One Present: Con-
sidering Legal Causes of Inequality', Emory Law JournalOnline, Vol. 64, 2015, p. 2043.
19 Hsu, 2015; see also M.J. Zimmer, 'Intentional Discrimination that Produces Economic Inequality:
Taking Piketty and Hsu One Step Further', Emory Law JournalOnline, Vol. 64, 2015, p. 2085.

530 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

alism. There was no juridical equality, positive right to property or freedom of

contract.
The feudal legal and institutional relationships were based on status, and the
economic organization of feudalism was a hierarchical system of use of land and
patronage. Under the system, the kingdom was divided and subdivided into
estates controlled by nobles, and they oversaw agricultural production and swore
allegiance to the monarch. At its core, there was an 'agreement' between a lord
and a vassal whereby a vassal pledged his allegiance, providing political, military
and financial service to the lord. In the feudal system, vassals and serfs worked
the land bound by law to a lifetime of labour, making their labour compulsory.
Feudalism was essentially a coercive system, fundamentally based on social
and consequently economic inequality, and it did not grant individual freedom.
However, the idea of freedom and individual rights gained a foothold over a time.
For example, in the twelfth century, during the reign of Henry II, the legal rights
of an individual facing trial were enhanced. In 1215, King John signed the Magna
Carta, which obliged the crown to uphold the rule of law, which was the common
law. Edward I extended parliamentary membership to commoners, and after the
peasant revolt of 1381, Richard II promised to abolish serfdom, although he failed
to do so, and serfdom came to an end over time in the fifteenth century.
Feudalism was also affected in 1337 by the outbreak of the Hundred Years
War between England and France, which lasted until 1543 and caused an unpre-
cedented military build-up on both sides, and the army swelled its ranks with feu-
dal labourers. The Black Death further contributed to the challenges faced by feu-
dalism. By the 1350s, war and disease had reduced the population significantly,
and as a consequence a new economic organization emerged that enhanced the
importance of labour, which became far more valuable and undermined the
manorial system. Farm labourers moved to large cities, an act once punishable
under the law. The demise of serfdom meant the demise of feudalism itself, and it
coincided with the end of the Middle Ages.

II Commercial Society: An Economic Organizationand Legal Order

As feudalism slowly began to fade away during the high and late Middle Ages
(eleventh to fifteenth centuries), it was replaced by the commercial society, a new
capitalist structure and a new model of economic organization of the
Renaissance. 20 The gradual impact of expanding individual freedom replaced the
concept of agricultural servitude, and the epoch of private farming for profit and
the growth of urbanization began. The progressive power of commerce began to
furnish individuals with new incomes. An uninterrupted migration of peasantry
from the country to the centres of commercial activity was fuelled by the hope of
gain and a better life. These individuals, who did not have their land to work on,
could sell their labour freely as a part of the commercial activity, and in the pro-

20 See W. Sombart, Der Moderne Capitalism, Leipzig, Verlag Von Duncker & Humblot, 1902. Som-
bart is of the view that the economic organization during the Middle Ages was not of a capitalist
nature, meaning that the capitalist society or economy during this period had not yet developed
to a stage that could be termed as a capitalist economic organization.

European Journal of Law Reform 2019 (21) 4 531

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

cess built the first fortunes in movable property that were known in the Middle
Ages.
Commerce in the Middle Ages was characterized by the freedom of move-
ment, freedom of merchants and hence free capitalist expansion. From the
twelfth to the fifteenth centuries, capitalism exercised its influence on the charac-
ter of economic organization that succeeded, by providing legal foundations
based on juridical equality, the right to property, and freedom of contract, allow-
ing capitalism to flourish 2 ' as the nature of this capitalism was commercial and
its purpose was the constant accumulation of wealth.
However, towards the end of the Middle Ages, capitalism no longer enjoyed
the freedom of development that it once did during the eleventh to the thirteenth
centuries. By the end of the fifteenth century, capitalism was subject to numerous
municipal legislative limitations to curtail its abusive excesses. The municipal
statutes regulated wages, conditions of work, prohibited speculation, and limited
the freedom of merchants. The church also joined in, and opposed usurious lend-
ing and forbade excessive profits.22 Thus, to support the ideals of capitalism, free-
dom of contract was restricted.
The concern of the early observers and advocates such as Adam Smith and his
contemporaries was societal change and individual progress, meaning a continua-
tion of intellectual progress of the Renaissance and the expansion of individual-
ism. Their concern was the normative and positive legal underpinnings of the
commercial society. In the new positive legal order, the reform required the rec-
onceptualization of property and contract law 2 3 to support the ideals of capital-
ism. This was the most significant and fundamental milestone in the develop-
ment of laws of capitalism, 24 the common law. At the heart of this reconstruction
were the markets of grain and labour.25 Reforming them required the elimination
of price and supply control on grain, and this meant elimination of the so-called
'moral economy' where the state or local community had accepted responsibility
for food provision. 6 The reform also meant abolition of guild restrictions on
entry into trades and of feudal dues.2 7 Since these two markets were intertwined,
reform in one necessitated reform in the other.28 The idea behind this reconstruc-
tion was the societal progress: commercialization of labour relations, more pro-

21 Pirenne, 1914, p. 497.

22 Pirenne, 1914, p. 510.
23 See J. Purdy, The Meaning of Property,New Haven, Yale University Press, 2010, pp. 9-43.
24 D. Acemoglu & J.A. Robinson, The Rise and Fall of General Laws of Capitalism, National Bureau of
Economic Research, Working Paper No. 20766, 2014, https://afinetheorem.wordpress.com/
2014/08/22/the-rise-and- fall-of-general-laws-of-capitalism-d-acemoglu-j -robinson-2014 (last
accessed date 11 October 2019); M. Foucault, The Order of Things, London, Routledge Classics,
1970, p. 285; R.M. Unger, What Should LegalAnalysis Become? New York, Verso Books, 1996, p. 3.
25 Grewal, 2014.
26 E.P. Thompson, 'The Moral Economy of the English Crowd in the Eighteenth Century', Past and
Present, Vol. 50, No. 1, 1971, p. 76; E.P. Thompson, Customs in Common, New York, The New
Press, 1991, pp. 259-351.
554
27 J. Markoff, The Abolition of Feudalism,Oxford, Oxford University Press, 1996, pp. -556.
28 Grewal, 2014.

532 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

ductivity in agriculture, a larger tax base for the state, and so on.29 These were the
origins of the designing and drafting of the laws of capitalism, and these laws
were underpinned by the new notions of juridical equality and the right to private
property founded on the new concept of freedom, which legalized itself into the
principle of freedom of contract. When at the end of the eighteenth century the
industrial revolution brought in new conditions of economic activity, the legal
foundations laid down during the phase of commercial capitalism remained; mar-
kets and the division of labour became central to the distribution of goods and
30
services in comparison with earlier societies.

III JuridicalEquality
The shift from feudal status-based inequality to equality before the law was ach-
ieved. In 1215, Archbishop Stephen Langton assembled the barons of England
and forced King John to sign the Magna Carta by which future sovereigns and
magistrates were required to uphold the rule of law and acknowledge its govern-
ance of society. In the early modern period, a reference to juridical equality
appeared in a petition to James I of England in 1610. 3 1 In 1607, the idea had also
32
found favour with Chief Justice Sir Edward Coke in the Case of Prohibitions.
Samuel Rutherford gave the concept of juridical equality a theoretical foundation
in his book, Lex Rex (1644), the title literally meaning 'the law is king', a subver-
sion of a traditional formulation rex lex ('the king is law'). 33 The principle was sup-
ported by John Locke in his Second Treatiseof Government (1690), and by Montes-
quieu in The Spirit of the Law (1748).

IV PrivatePropertyRights
In the Middle Ages, there was no right to own landed property; it was a status-
based feudal society. The notion of a right to private property emerged during the
Renaissance as international trade gave rise to mercantilist ideas and merchants
were increasingly in possession of movable property. However, the right to pri-
vate property emerged as a radical demand in seventeenth century revolutionary

29 Hont & Ignatieff, 1983, pp. 13-26.

30 Polanyi et al., 'The Economy as Instituted Process', in K. Polanyi (Ed.), Trade and Market in the
Early Empires, Glencoe, Free Press, 1957, p. 243.
31 See quoted from House of Commons in H. Hallam, The ConstitutionalHistory of England, Volume
1, 1827, p. 441: "Amongst many other points of happiness and freedom which your majesty's
subjects of this kingdom have enjoyed under your royal progenitors, kings and queens of this
realm, there is none which they have accounted more dear and precious than this, to be guided
and governed by the certain rule of the law which giveth both to the head and members that
which of right belongeth to them, and not by any uncertain or arbitrary form of government...."
32 Case of Prohibitions [1607] EWHC J 23 KB: "that the law was the golden met-wand and measure
to try the causes of the subjects; and which protected His Majesty in safety and peace: with which
the King was greatly offended, and said, that then he should be under the law, which was treason
to affirm, as he said; to which I said, that Bracton saith, quod Rex non debed esse sub homine, sed
sub Deo et lege [That the King ought not to be under any man but under God and the law]."
33 S. Rutherford, Lex Rex: The law and the Prince, Edinburgh, Robert Ogle and Oliver & Boyd, 1644.
The book published in response to Bishop John Maxwell's 'Sacro-SanctaRegum Majestas' and that
defends the rule of law.

European Journal of Law Reform 2019 (21) 4 533

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

Europe. 34 Property ownership in freehold land gave a man the right to vote;
hence, political freedom at the time was associated with ownership of freehold
land and individual independence. However, anyone could own landed property if
they could afford to buy it. 3 5 Abbe Sieyes, a French Revolutionary, also argued in
favour of property ownership, but for political reasons he also advocated better
citizens' rights for the individuals who owned property. The idea behind this was
to encourage the rapid expansion of commercial activities, and Sieyes favoured
the unrestricted accumulation of property and wealth. However, Maximillian
Robespierre was of the view that the unrestricted accumulation of wealth ought
to be limited, and that the right to property should not be allowed to violate the
rights of others, particularly of 'passive citizens' as defined by Abbe Sieyes. Robes-
pierre's views were eventually excluded from French Constitution of 1793. How-
ever, they have some resonance with Piketty's thesis, r > g. John Lock further
developed the ideas of property. He argued that property ownership derives from
the individual's labour and that it is an inalienable natural right and that one is
36
therefore entitled to own landed property bought with the fruits of that labour.
Juridical equality, protection of property rights and freedom of contract, later
affirmed by a constitutional framework, gave birth to the idea of the sovereignty
of the people - democracy - which provides legitimacy to a government, while
still identifying them as two distinctive features of modern society. 37 In this con-
text, the founders of democratic institutions and republics understood the legal
institution of property not as a method of allocating resources more efficiently,
but rather as a foundation of freedom and democracy. This vital critical imagina-
tion is grounded on the balance of history, philosophy and common sense that
shows us how society should essentially view the importance and role of prop-
erty.38 This view of property gives meaning and purpose to Adam Smith's under-
standing of property as a legal institution that could be a predominant element in
a vision of a society that integrates the values of prosperity, freedom and virtuous
character. 39 All these ideas are based on the concept of freedom from the legal
foundations of the social process that establishes the economic system of
40
capitalism.

34 M. Ishay, The History of Human Rights: From Ancient Times to the GlobalisedEra, Berkeley, Univer-
sity of California Press, 2004.
35 D.W. Rossides, Social Theory: Its Origins, History, and ContemporaryRelevance, Lanham, Rowman
& Littlefield Publishers, 1998.
36 J. Locke, Second Treatise on Civil Government, New York, Prometheus Books, 1689, p. 27. Locke
said that "every man has a property in his person; this nobody has a right to but himself. The
labour of his body and the work of his hand, we may say, are properly his".
37 B. Ackerman, We the People:Foundations, Vol. 1, Cambridge, Harvard University Press, 1991. This
presents a far-reaching reinterpretation of the US's constitutional experience, analysing the past,
present and future of popular sovereignty in America.
38 Purdy, 2010.
39 Ibid.
40 Grewal, 2014.

534 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

V Freedom of Contract and Individualism

The theory of freedom of contract is an abstract philosophy of law, and, as a con-
sequence, the philosophical basis of the concept has been variously theorized. 4 '
Its effect has changed with the changing opinions of law in England. 42 Its devel-
opment has been based on empirical inference or social experience. In the back-
ground of the abstract and empirical dichotomy, theorizing has always been a
contentious ground among legal scholars and judiciary alike. Metaphysical and
political philosophers alike moralized the idea of freedom in the latter half of the
eighteenth century. Although in some senses the idea of freedom was not new,
the development and insistence of it as founded on an immutable basis of moral
43
right and natural law was recent.
Metaphysicians emphasized that the ego and the individual human will act as
the basic facts of life. This intellectual thinking underlined the significance and
substance of individual freedom; in other words, individualism. The economic
thinkers of the time espoused individualism in their writings. Adam Smith, Jere-
mey Bentham and John Stuart Mill all advocated the freedom of bargain as the
unquestionable prerequisite of progress. The insistence on utilitarianism and the
doctrine of laissez faire was emphatic; it encapsulated the idea that by greatest
individual freedom the greatest human development will be achieved. 44 Individu-
alism became synonymous with the progress of the individuals as people. The
theorizing of individual freedom in metaphysics, politics and economics and the
resulting various manifestations of the doctrine have had a profound effect on
the law and, in particular, its application to contract law.
The concept of freedom of contract is at the heart of the notion of a free or
capitalist market economy; this gave birth to the idea of political economy in the
work of Adam Smith's Wealth of Nations.45 Mill's essay on 'Liberty' published in
1859, which is based on utilitarian philosophy, is the most influential expression
of economic doctrine embedded in the freedom of contract. It makes an eloquent
argument for individualism and allows the free development of the individual. It
was the philosophy of freedom and individualism that demanded that the law
should enforce the obligation of a contract.

VI Limitation of Freedom of Contract

The common law never enforced a contract that was deemed to oppose public pol-
icy, even when based on the free will of the parties. An obvious example of such a
contract is where it contemplates a tort or crime. Perhaps the most striking
examples of contracts that were held invalid were those in restraint of trade, and

41 D. Pound, 'Liberty of Contract', Yale Law Journal,Vol. 18, No. 7, 1909, p. 454; D. Pound, 'The End
of Law as Developed in Juristic Thought,' HarvardLaw Review, Vol. 27, 1914, p. 605; D. Pound,
'The End of Law as Developed in Juristic Thought', HarvardLaw Review, Vol. 30, 1917, p. 201.
42 A.V. Dicey, Law and Opinion in England, London, Macmillan, 1905.
365
43 S. Williston, 'Freedom of Contract', The CornellLaw Quarterly,Vol. 6, No. 4, 1921, p. .
44 J.S. Mill, On Liberty, London, John W. Parker and Son, 1859.
45 A. Smith, An Inquiry into the Nature and Causes ofthe Wealth ofNations, London, William Strahan,
Thomas Cadell, 1776, pp. 524-543; 135-159; 469-471, in which Smith criticizes the apprentice-
ship system.

European Journal of Law Reform 2019 (21) 4 535

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

contracts involving a penalty or forfeiture. Such contracts would have been con-
trary to no law yet were held unenforceable because they were declared unreason-
able by the courts. The courts provided relief to mortgagors from provisions in
their deeds providing for forfeiture of the mortgaged property and declined to
enforce provisions for unreasonable penalties that the parties had agreed. Ironi-
cally, the prohibition against 'restraint of trade' contract restricts the freedom of
the promisor when the promise inflicts personal injury on them and the conse-
quent oppression and denial of freedom that he will experience by keeping to a
restrictive contract.
However, the influence of freedom of contract remained entrenched in
favour of capitalism as an applicable feature of public policy, which was best
articulated in Printing and Numerical Registration Co v. Sampson 46 by Sir George
Jessel MR:

If there is one thing more than any other which public policy requires, it is
that men of full age and competent understanding shall have the utmost lib-
erty of contracting and that contracts when entered into freely and
47
voluntarily, shall be held good and shall be enforced by courts of justice

In the twentieth century, the opinion of common law had changed significantly.
In George Mitchell (Chesterhall)Ltd v. Finney Lock Seeds Ltd, 48 Lord Denning com-
pared freedom of contract with the oppression of the weak. Given the continued
abuse of the principle of freedom of contract by the relentless innovation of capi-
talism, the judiciary further resorted to the idea of the true construction of the
contract. This was used to depart from the natural meaning of the words of the
exemption clauses.
Such limitation may also be discerned in a decision of the US Supreme Court
in Muller v. Oregon,49 in affirming a decision of the Supreme Court of Oregon,
which made it a misdemeanour to employ women for more than ten hours a day
in a factory, laundry or mechanical establishment. In the US, the Law of Carriers,
the Interstate Commerce Act and similar state legislation regarding interstate
business abolished freedom of contract between shipper or passenger and carrier
because the rates a carrier may charge or the facilities it must provide are deter-
mined by law and not negotiated between the parties as a matter of free will.
There are numerous examples of such legislation in areas such as insurance and
fire and safety laws where scope for free bargaining is almost non-existent.5 0 The
tendency of the legislature has been to limit freedom of contract where it is
contemplated that public policy necessitates it. The extent to which freedom of
contract is curtailed is a matter of fact depending on circumstances.

46 PrintingCo. v. Sampson, (1875) 19 Eq. Cas. L.R. 462.

47 Ibid.
48 [1983]2AC803.
49 Muller v. Oregon, (1908) 208 U.S. 412.
50 Williston, 1921, pp. 377-378.

536 European Journal of Law Reform 2019 (21) 4

doi:10.5553/EJLR/138723702019021004004
 Economic Inequality, Capitalism and Law

The issue of when and to what extent freedom of contract should be

restricted is essentially a question that can be answered only in the context of the
circumstances. There should be nothing in the concept of freedom of contract
that should prevent reasonable experimentation with new interpretations of the
concept itself, and the concepts of capitalism and the right to property. The ulti-
mate test of proper limitation on freedom of contract is that provided by experi-
ence; a sufficient scope is allowed for a reasonable social experiment for the gen-
eral welfare of the public, as long as it does not amount to undue interference
with freedom of contract. 51 The limitation must be kept as narrow as possible. It
is not reasonable to obstruct reality that is based on empirical evidence of free-
dom of contract. The only important thing is to prove that a limitation on free-
dom of contract is necessary or desirable. The unlimited freedom of contract, like
freedom in other areas of social life, is not necessarily conducive to public or indi-
vidual welfare.
The important issue to be considered is what the consequences of accepting
one or another theory of law are. Professor Dicey, in Law and Opinion in England,
deliberated on the effect of shifting flows of opinion on the development of the
common law and legislation in England. The effect of freedom of contract must
change according to time, space and circumstances as it has been changing over a
long period. Hence, contracts that lead to 'hoarding capital', including property,
although not obnoxious to any law, should be found unreasonable and against
public policy.

C Conceptual Framework of Institutions of Capitalism and Inequality

Capitalism is also a social order or governance, and its perception is collective

ordering through normalization of social action, either by public action or by pri-
vate contract. 52 In this sense, it is a system of institutions. By institution, we
mean a well-established and structured pattern of relationship or pattern of
behaviour that is accepted as a fundamental part of the culture of capitalism.
From an institutionalist perspective, capitalism is not primarily a self-driven
mechanism of surplus extraction and accumulation of wealth facilitated by law
and by study of the wage, labour or credit system; rather, it is a study of interrela-
53
ted social institutions.
The two institutions of capitalism, namely that greed is legitimate, and that
the maximization of wealth without an upper limit is permitted, are at the heart
of the inequality debate. All other institutions of capitalism support these two
institutions, and, as a consequence, the current institutional arrangement not
only causes but also perpetuates economic inequality. Capitalism as a social order

51 Ibid., pp. 374-376. See also, US Supreme Court doctrine in Lochner v. New York, (1905) 198 U.S.
53, where it was held that specific limitation on freedom of contract in relation to the 'safety,
health, morals and general welfare of the public' is acceptable.
52 W. Streeck, 'Taking Capitalism Seriously: Towards an Institutionalist Approach to the Contempo-
rary Political Economy', Socio-Economic Review, Vol. 9, 2011, pp. 137-167.
53 Ibid., pp. 137-140.

European Journal of Law Reform 2019 (21) 4 537

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

may be defined by the absence of an institutional limit on the amount an individ-

ual can aspire to; 54 the core institutions of capitalism, namely the free market and
money, do not set a ceiling on the material rewards individuals can legitimately
hope for. In this sense, they entail a promise of unlimited wealth. This open-
ended capitalism as a social and legal order encourages unlimited rewards and
promotes maximization of wealth without limit. This amounts to the rational-
egoistic maximization of self-interest. In this, there is a presumed legitimacy of
pursuing gain through freedom of contract without being constrained by any
norm. Maximization of self-interest - in other words, maximization of wealth - is
an institutional expectation because it is rational. Therefore, individuals are
expected to behave that way. At an abstract level, capitalism's institutional ethos
is reflected in the concept of homo economicus.
The free market, a core institution of capitalism, is based on civil rights of
individuals to engage in contractual trades between them in the pursuit of mate-
rial bargains. 55 Fundamental civil rights are rooted in the basic principle of free-
dom of contract. In capitalist societies, individuals strive to maximize material
gains, with commerce 56 having replaced the violence of feudalism. 57 In essence, a
capitalist society and state respects freedom of contract and private property and
creates an environment that allows the maximization of material gains and, in
58
principle, unlimited material wealth.
The justifying argument for the maximization of wealth is that it is achieved
through voluntary agreement rather than by force, and hence that it is legiti-
mate. 59 Marx characterized this phenomenon as Plusmacherei, translated in his
formula M-C-M. However, where freedom of contract ends, contracts begin to be
concluded under duress; hence their illegality. At this juncture, as a matter of def-
inition and regulation, it is the proper role of the state not only to draw but also
to observe the clear line between voluntary exchange and duress.
Actors in the free market are rationally-egoistic. They are oriented to the
maximization of self-interest, meaning maximization of economic gain. Institu-
tionally, they are opportunistic and follow the intensive pursuit of self-interest.
They bend rules to achieve these ends. They have marginal ethics. These are nor-
malized intentions; they may be nurtured in bad faith, but they are normal. The
free market, as the core institution of capitalism, pledges to deliver common good
as an unintended by-product of the self-interested pursuit of private goods. Insti-
tutionally, common interests are looked after by the uncontrolled pursuit of indi-

54 Ibid., p. 148.
55 T.H. Marshal, 'Citizenship and Social Class', in T.H. Marshall (Ed.), Class, Citizenship, and Social
Development, 2nd ed., New York, Anchor Books, 1965, pp. 71-134.
56 A.O. Hirschman, Rival Interpretations of Market Society: Civilising, Destructive, or Feeble?, Jour-
nal of Economic Literature,Vol. 20, 1982, pp. 1463-1484.
57 See generally, K. Polanyi, The Great Transformation:The Politicaland Economic Originsof Our Time,
Boston, Beacon Press, 1957 [1944].
58 Streeck, 2011, p. 143.
59 H. Spencer, The Principles of Sociology, New Brunswick and London, Transaction Publishers,
2003[1882]. In three volumes, with a new introduction by J.H. Turner, quoted by W Streeck (n.
52), p. 143.

538 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

vidual interests. Any contrary view would amount to misallocation of resources

and hence a distortion of the market. This is by definition regarded as rational
and normal and therefore to be expected.60 Thus, economically maximizing
behaviour or greed exists as an institution in capitalism.
Capitalism, equipped with freedom of contract and the right to property, pro-
moted what could be called a super-norm; namely, that everything that is not
explicitly forbidden by law is allowed. The contrary traditionalist view of capital-
ism would be that everything that is not permitted is prohibited. Thus, the non-
traditional, advanced capitalism takes the view that what is not explicitly forbid-
den amounts to an individual right. This right allows innovation and creative
interpretations - or bending - of rules in favour of capitalists' interest, which
might be inimical to social order. 6 ' The evidence of such an innovation may be
seen in the securitization of financial assets in the 1980s and 1990s after the
repeal of the Glass-Steagall Act in the US. The innovation securitized the various
types of assets (loans) into financial products such as Mortgaged Back Assets
(MBA), Asset Backed Securities (ABS), Collateralized Debt Obligations (CDO) and
Collateralized Mortgage Obligations (CMO), which cumulatively contributed to
the onset of the financial crisis of 2007-2008.
One can discern in the above arguments that capitalism as a social order can
be viewed as one of two kinds: Durkheimian or Williamsonian. The institutions of
Durkheimian capitalism are traditional, based on historical and sociological insti-
tutionalism, whereas Williamsonian institutions are based on rational choice
institutionalism.62 The traditional institutions are normative social structures
and are moral in nature; their norms are enforced and legitimized by society as a
63
whole, and they thus regulate the rational-egoistic pursuit of material gains.
Williamsonian institutions, on the other hand, are based on freedom of contract
and voluntarism between the presently contracting parties and are economic in
nature. Liberal progressivism views the expansion of markets as a historical pro-
cess that replaces normative and moral institutions with contractual ones.

I Freedom of Contract: CapitalistDevelopment and Market Expansion

Capitalism has also made significant advances in terms of progressive commerci-
alization and commodification of social relations. The nature of capitalist devel-
opment may be understood as a gradual or periodic process of expansion of mar-
ket relations through the system of contracts, where capitalists stand to gain
unlimited and unequal rewards. 64 Market expansion or economic growth by inno-
vation such as reorganizing private lives, including the commercialization of
household services, and organization of social and commercial relations upsets
social structures and leads to unlimited gains for the capitalists and consequent

60 Streeck, 2011, p. 149.

61 Ibid., p. 147.
62 P.A. Hall & R. Taylor 'Political Science and the Three institutionalisms', PoliticalStudies, Vol. 44,
1996, pp. 936-957. The three versions of institutionalisms are, historicalinstitutionalism,sociolog-
ical institutionalismand rationalchoice institutionalism.
63 Streeck, 2011, p. 153.
64 Ibid., p. 155.

European Journal of Law Reform 2019 (21) 4 539

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

inequality. 65 Redistribution through the public sector is replaced by markets for

contractual exchange. The market also provides an incentive and opportunity as
more and more social relations - social spheres and an increasing range of neces-
sities of life66 are being commercialized and made available in exchange for cash
payment, or barzahlung,at market price. Freedom of contract allows capitalists to
push the boundaries set by social norms in the name of innovation, and such an
expansion of the capitalist market is similar to land-grabbing. Assumed flexibility
of the concept of freedom of contract and innovation has caused the progress of
market relations to outpace that of their social regulation. However, failure to
regulate the enormous flexibility of freedom of contract will result in progressive
inequality in society. Moreover, it has the tendency to lead to financial crisis, as it
did in 2007.
Open-ended capitalism consequently generates inherent agentic rule-bending
capacity, resulting in an inegalitarian tendency that affects social cohesion and
influences the democratic process. The open-ended maximization of wealth also
creates a divide between the elitist interests in the stability or survival of capital-
ism as an economic system; it is the masses who depend on the survival of tradi-
tional capitalism rather than the elite.6 7 The context of rising inequality and the
elitists' interests are poignantly reflected in the notion of plutonomy, 68 the term
used by the personal finance department of the Citigroup just before the onset of
the 2008-2009 financial crisis.
Protection from open-ended capitalism and the resulting progressive inequal-
ity may be found in Polanyi's 'double movement' of capitalist mobilization, when
opposite social forces emerge in the form of neo-Durkheimian or post-Williamso-
nian regulatory institutions.6 9 It is a dialectical response of society to the capital-
ist creative destruction; in a situation of political conflicts within a capitalist
social order, it shows who should be protected in society, how and why. Counter-
movements against the marketization of social life are inevitable; otherwise,
inequality will keep on rising, with devastating consequences for society.

D Imperfect Realization of Juridical Equality, Right to Property and

Freedom of Contract

Open-ended capitalism that allows accumulation of wealth without upper ceiling

causes progressive inequality in a society and, consequently, works against free-
dom and individualism that are supposed to be the ideals of capitalism.7 0 The
nature and tendency of such capitalism are inherently inegalitarian, producing
anomie and, consequently, posing a serious threat to a democratic society. It dis-
rupts social cohesion; the interests of the economic elite do not align with the sta-

65 Ibid.
66 Smith, A Wealth of Nations, Book III.
67 Streeck, 2011, p. 151.
68 A group of rich people whose consumption can sustain economic growth.
69 Polanyi et al., 1957.
70 Piketty, 2014.

540 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

bility of the economic system as a whole, and they grow irresponsible with respect
to the capitalist system's long-term survival; eventually, this loss of values causes
social instability.7 ' In the absence of a radical political alternative, the masses
have no control over the system's fate. 72 It transpires that the understanding of
the ideas and principles of freedom, individualism, juridical equality, the right to
property and freedom of contract have been imperfectly realized. It is this imper-
73
fect realization, particularly of juridical equality, that is in question.
The watershed of societal progress regarding individualism was the mid- and
late Middle Ages, when society progressed from feudalism to a commercial society
by juridical equality, a right to property and freedom of contract. Although the
freedom of contract and the right to property introduced the idea of competition
as an alternative to the violence of feudalism, given the institutional structure of
modern capitalism it still relies on violence to maximize economic gain. A glaring
example of this is seen in the revelations of the so-called PanamaPapers, namely
that the economic elite of the world like to pay no tax, whereas the ordinary peo-
ple pay taxes to sustain social services such as health, law and order and public
safety, which the elite then use. This kind of institutional behaviour will reduce
the standard of living in a given society. The capital stashed away in the tax
havens comes from all over the world, including poor societies, to be deposited
there beyond the reach of the law. This is happening supposedly because of free-
dom of contract, right to property and right to privacy, but at the cost of freedom,
individualism and juridical equality itself. The likes of corrupt dictators, unelected
leaderships and similar elites across the world, or the banks that reinvest their
wealth under the fig leaf of 'the banks are simply doing what they normally do', or
even as fraud in the London Interbank Offered Rate (LIBOR) case, are in essence
involved in the subversion of the ideals of juridical equality, right to property and
freedom of contract and are committing extreme violence, a parallel of which may
be found in feudalism.
In the twenty-first century, the economic organization of capitalism has
allowed sharp increases in the share of income and wealth accruing to the top 1%,
0.1% and 0.01% of the population. 74 It is critical to consider whether this is a jus-
tifiable phenomenon or whether such a relentless accumulation of wealth by indi-
viduals is the legitimate thing to do indeed in a social context, given that human
social history shows that the progress of the individual or individualism has been
its focus. The answer lies in an analysis of the proper understanding of the three
concepts - juridical equality, right to property and freedom of contract - associ-
ated with the movement of individualism. Individual progress was at the centre
of individualism. One could conclude that there are certain problems with partic-
ular institutions of capitalism. One has to determine what is being institutional-
ized in capitalism as a social order. The evidence of rising inequality shown by

71 See generally, E. Durkheim, Suicide:A Study in Sociology, New York, The Free Press, 1966[1897].
72 Streeck, 2011, p. 150.
73 Purdy, 2010.
74 Piketty (n. 3).

European Journal of Law Reform 2019 (21) 4 541

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

various empirical studies 75 and the status-based inequality originally seen in feu-
dalism exists to destroy individualism and juridical equality. In this sense, the
current practice of the freedom of contract and the right to property has caused a
subversion of fairness and justice. Although capitalism was born and flourished
because of these two fundamental principles of juridical equality, its institutions
of unlimited maximization of wealth - in other words, the maximization of greed
- have helped to derail the entire notion of juridical equality. The solution neces-
sitates the reconceptualization of these common law principles.
The issue of inequality is unlikely to be resolved just by limited income redis-
tribution, because there is something broader and more fundamental at work.
The origins of economic inequality must be investigated through the prism of law
and the institutions of capitalism; and these origins must lie in the subversion of
juridical equality, a right to property and freedom of contract. The solution to the
problem lies in understanding the nature of the right of freedom of contract and
right to property, and the most important thing is to determine the content of
these rights. It is a matter of ascertaining their purpose in a society, and how they
serve the welfare of that society. Given the cycle of disadvantage, a new under-
standing of the law is required, and it should deliver social justice. The unlimited
and open-ended maximization of material wealth was deemed morally inferior in
the pre-capitalist times. 76 The traditional concept of capitalism stood for both
society and economy together; they are intertwined and must be analysed
together in the context of the institutionalist political economy. 77 It cannot be
said that capitalism is devoid of the norms of decency or that it would not con-
demn the greediest individuals. However, the problem lies with the capitalist
institutions such as the market and money that do not discourage unlimited and
open-ended maximization of wealth, an upper ceiling an individual can aspire to.
Institutionalized upper limits will institutionalize social order and discourage
unnecessary maximization of wealth such as questionable financial innovation. In
the twenty-first century, a new institutional framework of capitalism is required.
The ideas of progress, fairness, juridical equality, the right to property and free-
dom of contract need to be reconceptualized.
In this context, the economic organization of capitalism is a political and
public issue, and as public policy, it requires a constructive legislative direction.
The excesses of capitalism can be checked only by positive law. This would require
innovative legislative thinking in most areas of law, including intellectual prop-
erty protection, public goods, local zoning laws and financial regulation. It is
essential to have legislation in place to reduce profits from rent-seeking activities,
and public policy's emphasis should be on producing products and services. If
society is to become more just and inclusive, a state that represents the perfect
realization of juridical equality, the right to property and freedom of contract, it
will be vital to legislate to discourage maximization of wealth - in other words,
hoarding of wealth without upper limit - and that the new economic organization

75 Piketty, 2014.
76 Streeck, 2011, p. 143.
77 Ibid., p. 138.

542 European Journal of Law Reform 2019 (21) 4

10.5553/EJLR/138723702019021004004
doi:
 Economic Inequality, Capitalism and Law

supports individual progress, which has always been the core concept of a demo-
cratic society.
As wealth hoarding without an upper limit is the key issue, and it is a threat
to freedom and juridical equality, as an institution of capitalism it should be dis-
couraged. Wealth hoarding by individuals without upper limit should be deemed
contrary to the social interest. In the interest of the survival of capitalism, a
financial regulatory regime should ensure the prohibition of wealth hoarding by
individuals beyond an acceptable limit. Capitalism is a dynamic and productive
force, and its survival within the bounds of reasonability is important for the wel-
fare of society. It is the effect of certain institutions of capitalism that is objec-
tionable, not capitalism per se. 78 Historically, the concept of capitalism does not
presuppose the existence of a single, typical economic and legal regime. 79 In this
context, it is the cause and effect analysis of the institutions of capitalism that is
important to allow society to envisage the acceptable form of capitalism.

E Conclusion

In the twenty-first century, the economic organization of modern capitalism is

allowing the accrual of sharp increases in the share of income and wealth to the
top 1%. It is critical to consider whether this is a justifiable phenomenon; in other
words, whether such a relentless accumulation of wealth without an upper limit
by individuals is a legitimate thing indeed in a social context, given the fact that
the human social history shows that the progress of the individual or individual-
ism has always been its focus. Open-ended modern capitalism causes progressive
inequality in society, and consequently it works against freedom, individualism
and juridical equality, which are supposed to be the ideals of common law and
capitalism. The nature and tendency of such capitalism are inherently inegalitar-
ian, causing anomie and, consequently, a serious threat to democratic society. It
disrupts social cohesion, the interests of the economic elite do not align with the
stability of the economic system as a whole, and they grow irresponsible on the
capitalist system's long-term survival, with an eventual loss of values that causes
social instability.
The understanding of the ideas and principles of freedom, individualism,
juridical equality, a right to property and freedom of contract have been imper-
fectly realized. It is this imperfect realization, particularly of juridical equality,
that is in question. Although the freedom of contract and the right to property
introduced the idea of competition as an alternative to the violence of feudalism,
given the institutional structure of contemporary capitalism, it still relies on vio-
lence to maximize economic gain.

78 P.A. Hall & D. Soskice, 'An Introduction to Varieties of Capitalism', in P.A. Hall & D. Soskice
(Eds.), Varieties ofCapitalism, Oxford, Oxford University Press, 2001, p. 1.
79 R.M. Unger, What Should Legal Analysis Become? Oxford, Oxford University Press, 1966, p. 3.
Timothy Shenk observed capitalism as a socialist term of abuse that gained the authority of a
stable entity or legal and institutional system. See T. Shenk, What Was Socialism?, The Nation,
2014, p. 27; M. Foucault, The Order of Things, London, Routledge Classics, 2002[1970], p. 285.

European Journal of Law Reform 2019 (21) 4 543

doi: 10.5553/EJLR/138723702019021004004
Shabir Korotana

The answer lies in an analysis of the proper understanding of these three con-
cepts associated with the movement of individualism. Individual progress was at
the centre of individualism and the fundamental understanding and interpreta-
tion of concepts of juridical equality, freedom of contract and right to property in
practice. In this sense of losing sight of it, one can say that there are certain prob-
lems with particular institutions of capitalism. Society must discern what is being
institutionalized in capitalism as a social order. The rise of economic inequality
seen in various prominent studies is inherently destructive of individualism and
juridical equality in the same way it was with feudalism. In this sense, the current
practice of the freedom of contract and the right to property has subverted fair-
ness and justice.
The solution lies in understanding the nature of the right of freedom of con-
tract and right to property and the determination of the content of the rights, their
rationale in society and how they help the welfare of that society. The economic
organization of modern capitalism is a political and public issue and a public pol-
icy; for that matter it requires a legislative direction. This would require inventive
legislative thinking in most areas of law, e.g., intellectual property protection,
public goods, local zoning laws and financial regulation. It is necessary to have
legislation to reduce profits from rent-seeking activities, and public policy impor-
tance should be on producing products and services. As wealth hoarding without
an upper limit is the key concern, and poses a threat to freedom and juridical
equality, as an institution of modern capitalism it should be opposed.

544 European Journal of Law Reform 2019 (21) 4

doi:10.5553/EJLR/138723702019021004004